How to Solve the Foreclosure Crisis Essay -- Economics

There should be a bifurcated targeting of the housing market. The first and main target of the housing recovery needs to be the cautious restructuring of the government sponsored entities—GSE’s—Fannie Mae (FNM), Freddie Mac (FRE) and to a lesser extent FHA. Recent news headlines put the combined total mortgage market share for the FNM, FRE and FHA at seventy-two percent (72%) [i] of the entire industry. The restructuring of those three entities will be a process of dividing their combined debt into at least ten smaller portfolios which individual investors can either incorporate into the existing businesses or form entirely new businesses made up of all or any part of the portfolio(s) they purchase. Each portfolio ideally will represent no more than a 5% to 7% share of the mortgage market so that we no longer have behemoths that are â€Å"too large to fail†. Further, the government will in all likelihood have to guarantee—for a limited period of time and with expectations of profit sharing similar to that of the banking bailouts and in fact the funds the banks are now paying back could be used for the purpose of guaranteeing so as not to offend the public—part of the initial funding that the private enterprises will need and want in order to get their respective pieces of the mortgage market launched. The breakup of these three GSE’s into numerous pieces will help manage the ability of success as it is not likely that all ten pieces will fail and as smaller players are easier to manage this will help increase the likelihood for success. In order for the government to get both the best price/value for each portfolio created from the breakup each of these portfolios should have different levels of mortgage debt risk. This will incr... ...o handle or avert another crisis should one come our way in the future and to return to the tax payer the monies it has already paid to bailing out these institutions. Works Cited [i] A combined market share of 72% for Fannie Mae, Freddie Mac and FHA as indicated by Mortgage Market Note—CIRE Magazine: http://www.ciremagazine.com/article.php?article_id=307 (04/01/2009; 09/14/2009) also see the NPR report at http://www.npr.org/templates/story/story.php?storyId=98285028 (12/17/2008; 09/14/2009) [ii] BretWhissel Mortgage Calculator http://www.bretwhissel.net/cgi-bin/amortize (09/14/2009) [iii] American Institute for Economic Research report http://www.aier.org/research/commentaries/583-update-on-the-house-price-trends (10/16/2008; 09/14/2009) also see the iTulip report http://www.itulip.com/housingbubblecorrection.htm (01/20/2005; 09/14/2009)